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How do you reckon our democratic process works? It could be along the lines of this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Rise of Offshore Courts

Nowadays, overseas companies, along with the wealthy individuals that control them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. They are open exclusively to businesses registered abroad.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

These awards represent not real financial harm but money the panel members decide the company might otherwise have made. The state may have to abandon its policy. It is hesitant to introducing similar legislation of a similar nature, worried about being sued.

A System Running Rampant

Record numbers of legal actions are being brought, as companies observe each other, and hedge funds finance suits in return for a cut of the settlements. The result? Sovereignty and democracy are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the choices made by legislatures is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – inside international trade agreements.

A Real-World Instance: The Cumbrian Coalmine

A year ago, activists won a great victory at the senior court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for a generation, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government subsequently revoked the licence the Tories had granted. Today, this success is under threat by an secret arbitration panel accountable to only the corporations petitioning it.

In August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim challenging the UK government. Recently a arbitration panel in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had been permitted to commence operations. We have no clear indication how much this might be. Which individual is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government enacts a policy, the domestic court supports it, then a international entity contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already filed a claim against a small nation on these grounds, seeking sixteen billion dollars: an amount representing half state's yearly income. Among the counsel representing him there? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s delay in utilising seized oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that these scenarios were not possible. Years ago, a government leader, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this topic described campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Predictions that “once firms begin to understand the authority bestowed upon them, they will turn their attention from the weak nations to the developed economies” were greeted by general mockery.

That warning has now materialised. In the current period, oil and gas and resource corporations have filed a historic level of suits against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – government attempts to stop global warming. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP